A peek into the future.
There has never been a more crucial time to take control of your IRA. By personally managing your IRA, you are managing your future. Why is this so important today? We are on the doorstep of two major financial catastrophes.
1. Your state needs money, and the legislature is looking at your wallet.
Each state is different. At the beginning of the year, some states were financially balanced, while other states entered the pandemic carrying a large backlog of debt. As a taxpayer, we can look at recent information regarding state finances as compiled by the tax foundation, giving a glimpse of the future.
State governments have been slow to project their costs for the next 18 months. Which is understandable. No one wants to venture a guess at the total increase in state expenditures as a result of the coronavirus:
- Higher unemployment insurance costs
- More aid for low-income families
- Increased medical cost reimbursements
Since states are not ready to make their budget projections, the tax foundation has left the “expense line” blank.
States have begun to build their revenue models.
To do this, most states reassessed three lines on their budget projections:
- Personal income taxes
- Business and corporate income taxes
- Sales taxes
The change in projected revenue from these three sources was then compared to the projections at the beginning of 2020. The cumulative decrease in state revenue is projected to be $121 billion. What tool will the states use to raise the money? They will need to increase state income tax across the board.
2. Do you have a pension?
Many think these “lifetime guaranteed money machines” are a relic from long ago. Not true. Some pension plans still exist. According to the Bureau of Labor Statistics, 18% of private-sector employees are still covered by a lifetime pension. When you add to these government employees who will be receiving lifetime pensions, you cover 31% of American households who have pension coverage. Full disclosure: I spent just a few years writing for the Washington Post. Today I receive a small check each month and will continue to receive it for life. (So, they tell me.)
Cracks in the pension plan structure
Cracks in the pension plan structure began to show in the 1980s.
- Were companies saving enough?
- Were they investing wisely?
- Had they made proper assumptions about the longevity of their retired employees?
To address these questions, the Department of Labor (DOL) established formulas and a reporting procedure for every private-sector pension plan. Please note, government plans are exempt from reporting. It should not be a surprise, that as retiree longevity increased, and investment performance did not keep up, red flags began to appear. More and more pensions were no longer earning money fast enough to be able to keep the pension promises they made to their employees. As of the last reporting period, private-sector pension plans are $4.9 trillion underfunded to meet their obligations.
The best cure for you
Your most reliable tax repellent known to man! Using a Self Directed Roth IRA for every investment opportunity. A Roth Self Directed IRA is a tax-advantaged retirement savings account. Self Directed IRAs may make a wide range of investments. With a Roth Self Directed IRA, account distributions are tax-free. Fund your own Self Directed Roth IRA and start investing now because that pension you are relying on may not be ready for you when you are ready for it.
-Dennis Blitz
President IRA Club
IRA Club offers no investments, products, or planning services. Therefore, please consult your attorney, tax professional, financial planner, and any other qualified person before making any investments.
